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My inheritance situation - is one of us going to get screwed over?

66 replies

Wholeboxoftissues · 22/12/2024 14:36

My dad has just changed his will and it sounds reasonable on the surface but I'm worried there might be pitfalls...
My dad owns two houses - my childhood home which he lives in with my mum, and another house which he inherited and my sister lives in it for a low rate of rent. The two houses are roughly equal value. I don't think my mum's name is on either house.
Years ago his will said that both houses would be left to me and my sister equally, and if my sister wanted to continue living in that house then she would have to pay me rent for my half or she would have to buy me out.
He has now changed the will to simplify things, as my sister has lived there so many years it is very much her home now. The house my sister lives in will now be inherited by her alone, and my childhood home will be inherited by me alone.
The arrangement with my mum is that if my dad dies first then I have to allow her to continue living in the house, she herself doesn't inherit it.
I don't know anything about inheritance tax or the rules about selling your home to pay for care. Is there anything about this arrangement that is dodgy and is going to bite either me or my sister in the arse years down the line?

OP posts:
olderbutwiser · 22/12/2024 14:48

I’m not a lawyer so this may be a naive question but:

Is the house wholly his? If they own it as joint tenants and he dies first then it will automatically go to your mum and then she can leave it to whoever she likes. If they are married then I’m not sure how he can own 100% of the house unless they own it as tenants in common and he owns 100% of it.

But if his will has been drawn up with a solicitor I assume that’s all been worked through.

mugglewump · 22/12/2024 14:49

I think your family needs to see a solicitor to sort this out. Your dad can leave the house to your mum tax free (assuming they are still together), so inherritance tax would only apply to the rest of the estate (eg your sister's house). It therefore makes sense for your dad to leave everything to your mum, except your sister's house, and then your mum to leave the house to you. If he leaves everything to the pair of you and not to your mum, you run the risk of a huge tax bill (assuming the houses push you other the threshhold). Only downside, is if your mum meets someone else after your dad dies and wishes to change her will in her new partner's favour.

Miloarmadillo2 · 22/12/2024 14:53

If your parents are married surely both houses belong to both of them irrespective of what is on the deeds/mortgage? So one or both could end up having to be sold to pay for the surviving parent’s care. Also inheritance tax of 40% on the estate over £500,000 if left to children (which I assume 2 houses is) I think you as a family need legal advice on how best to manage this.

If it’s likely your parents will live 7 years plus could they give the sister’s house to both of you now and your sister pays you half rent? Then leave parents house to you both once both parents have died and sort it out from there? It could be sold to cover any inheritance tax and she buys you out of her house from her share?

westisbest1982 · 22/12/2024 14:56

Is the house wholly his? If they own it as joint tenants and he dies first then it will automatically go to your mum and then she can leave it to whoever she likes.

Even if he’s the sole owner, as OP suspects, it doesn’t matter what it says in his will about the houses going to his daughters, the houses automatically go to his wife should he die before her. I think that’s right (going through a similar situation).

Thismighthelp · 22/12/2024 14:59

I think this will be for inheritance tax planning purposes, and the intent will be positive for you both

ThereIsALifeOutThere · 22/12/2024 15:10

westisbest1982 · 22/12/2024 14:56

Is the house wholly his? If they own it as joint tenants and he dies first then it will automatically go to your mum and then she can leave it to whoever she likes.

Even if he’s the sole owner, as OP suspects, it doesn’t matter what it says in his will about the houses going to his daughters, the houses automatically go to his wife should he die before her. I think that’s right (going through a similar situation).

That sounds quite surprising.

eg if a man remarries but decides to leave everything, incl the house to his dcs and nothing to his wife, it’s pretty clear that this is what happens.
i thought it was pretty clear things go to the partner if there is NO will.

I would REALLY want to check that mum isn’t on the deeds of either houses.

It’s also a really precarious situation for her and one I wouldn’t accept if I was her. At the very least, the fact she can stay in the house until her death should be specified.

22mumsynet · 22/12/2024 15:19

westisbest1982 · 22/12/2024 14:56

Is the house wholly his? If they own it as joint tenants and he dies first then it will automatically go to your mum and then she can leave it to whoever she likes.

Even if he’s the sole owner, as OP suspects, it doesn’t matter what it says in his will about the houses going to his daughters, the houses automatically go to his wife should he die before her. I think that’s right (going through a similar situation).

This is wrong. If he solely owns the house he can leave it to whoever he chooses in the will. However a wife could make a claim against the estate if they have not been left reasonable provision. There is nothing to say that a spouse automatically inherits a solely owned property where there is a will. Under the intestacy provisions a spouse would be entitled to the first £322k and half the rest.

22mumsynet · 22/12/2024 15:25

If your dad solely owns both the properties this is very IHT inefficient. Does your mum have any assets in her sole or joint name with him?
if everything is in his sole name there there is only one set of IHT allowances (as hers are effectively wasted), this is a nil rate band (NRB) £325k and residence nil rate band (where a residence is left to a direct descendant) of £175k so £500k NRB total. iHT @40% on the rest. By better planning and using your mums allowances also then could have a NRB of £1m.

FeegleFrenzy · 22/12/2024 15:34

You’d be liable for repair costs I guess while your mum lives there.

your sister has an immediate benefit of a house and potentially you won’t.

no idea about potential impact if care home fees are needed or if your mum would have a claim. Are your parents married?

mumda · 22/12/2024 15:39

Having really low rent is a lovely gift for her.
Giving her the house now is definitely a problem should he need care shortly.

WallaceinAnderland · 22/12/2024 15:41

How will the money for IHT be raised if your dsis is not selling her house?

Fuckthecamelyourodeinon · 22/12/2024 15:49

If your mum ends up in a care home, would she have to sell to pay the house for her care? I don't think you can change the deeds such that you own it to get around care home fees otherwise everyone would do this surely?

Businessflake · 22/12/2024 16:10

Sounds like an IHT nightmare. If it all goes to your Mum there is no IHT payable. If it goes to you and your sister there potentially is (although I think the allowance is higher if it’s a primary residence going to a direct descendant). So if neither property is being sold how would you pay any IHT due?

IHT is due on the estate not what goes to individuals. What your Dad could do is leave the one house to your sister and everything else to your Mum. That might mean nothing due on his death. Your Mum could then leave the other house to you before everything else is split with your sister. But this will very much depend on the various valuations.

Alternative is gift the one house to your sister now and hope he survives for 7 years.

I would really recommend that your Dad gets some proper estate planning advice before changing his will.

ItOnlyTakesTwoMinutes · 22/12/2024 16:12

westisbest1982 · 22/12/2024 14:56

Is the house wholly his? If they own it as joint tenants and he dies first then it will automatically go to your mum and then she can leave it to whoever she likes.

Even if he’s the sole owner, as OP suspects, it doesn’t matter what it says in his will about the houses going to his daughters, the houses automatically go to his wife should he die before her. I think that’s right (going through a similar situation).

of course it matters, that’s what wills are for.

Ohnonotmeagain · 22/12/2024 16:16

westisbest1982 · 22/12/2024 14:56

Is the house wholly his? If they own it as joint tenants and he dies first then it will automatically go to your mum and then she can leave it to whoever she likes.

Even if he’s the sole owner, as OP suspects, it doesn’t matter what it says in his will about the houses going to his daughters, the houses automatically go to his wife should he die before her. I think that’s right (going through a similar situation).

No.

i own my house. My name, my mortgage. Dh has never owned or paid for any part of it.

I can leave it to whoever I choose. I have to leave dh provided for- he will be able to live in the house for as long as he wants and will have my pension, but ultimately the house will go to my children.

assets are only considered joint for divorce purposes.

westisbest1982 · 22/12/2024 16:16

ItOnlyTakesTwoMinutes · 22/12/2024 16:12

of course it matters, that’s what wills are for.

Yep, my apologies - just spoke to my sibling who confirmed that in a sole ownership situation the will is relevant.

Ohnonotmeagain · 22/12/2024 16:20

I am not sure but I think this will be complicated by the sisters house not being his main home, it will not come under the main home exemption for IHT and there may be capital gains in the mix as well.

i would get a proper estate planner involved.

recyclingisaPITA · 22/12/2024 17:26

Fuckthecamelyourodeinon · 22/12/2024 15:49

If your mum ends up in a care home, would she have to sell to pay the house for her care? I don't think you can change the deeds such that you own it to get around care home fees otherwise everyone would do this surely?

If OP inherits the house where DM lives, with DM having a lifetime interest in the property (ie she can live there until she dies), then DM can't sell it to pay for care fees because DM doesn't own it.

If DM doesn't have a lifetime interest in it then she's simply living in a house owned by someone else and is at the mercy of being thrown out by OP if OP wanted or needed to sell the house to pay for inheritance tax.

This is why people don't give their property to their DC whilst the parents are still alive, because it puts them at the mercy of the DC as to whether or not they're made homeless.

The issue for you OP is one of opinions and whether members of your family think everything should be equal shares inheritance. Although it's really only the opinion of the person leaving the inheritance that matters, legally. As it stands, it's not "fair" as in an equal split with you and DSis.

DSis gets cheap rent for years and then inherits a house, which she plans to live in. Ok, but how is she going to pay the inheritance tax on the value of that house if she's presumably poor? She'd also get the disregarded part of the house's value under inheritance tax rules (your DF inheritance tax allowance, which that allowance would be split between you and her).

Meanwhile, you inherit a house you can't sell because your DM has a lifetime interest in it. You have to pay inheritance tax on the part that isn't disregarded, (your DF inheritance tax allowance, with that allowance being split between you and DSis). You're still responsible for maintaining the house though, even though you don't live there. Fine if you're rich, not so great if you're struggling to even pay your own house (that you live in) repairs, assuming you already own. If you are currently renting, it's going to suck a bit knowing you have a house which you own, but can't live in it until DM dies so you have to keep paying rent to some landlord.

If DM inherits the house she lives in and not you, then 1) DSis gets DF entire inheritance tax allowance disregard all to herself. So less inheritance tax to pay for her. 2) DM house which she now inherited, it'll be sold for care fees (if she needs care), and has insufficient other funds to pay for it (a care home is thousands per week). Then you'd inherit nothing. Or 3) If she doesn't need care and dies still owning the house, then you inherit it and have the entire disregarded initial part due to DM inherence tax allowance, so less inheritance tax to pay for you.

So DSis gets a house regardless, which she may have to sell to pay some inheritance tax. She buys something she can afford and carries on with her life.

But your situation is more complicated because yours isn't a straight inheritance. There's financial implications for you. You may, depending on how it's set up, inherit nothing if house is inherited first by DM and ends up sold to pay for DM care. Or you may inherit a house you are legally obligated to carry out repairs on at a time in life you maybe can't afford those repairs, but you can't sell the house instead. You could also be liable for inheritance tax but unable to legally sell the house to raise the money to pay it.

If your DF wants to make it equal he should leave it so that both of you jointly inherit both houses. That way whatever the financial implications are, both you and DSis meet them equally. Your DSis would have to buy you out of your half of the house she lives in, if she wanted to continue living there and both of you would have to raise money elsewhere to pay the inheritance tax if you're not raising that money by selling the house DSis lives in. This assumes there's no other assets eg cash to be inherited which could be used to pay inheritance tax.

Basically DF is trying to prevent the house where DM lives being sold for care fees by leaving it to you, not DM, so he's trying to give you the chance to inherit the house, but the risk is there may be financial implications for you. He's taking a gamble on which is most likely, DM needing care in old age (so then best option is to leave house to you) or you being too poor to afford inheritance tax/house repairs on a house you can neither sell nor live in (so then best option is to leave house to DM and DM leaves it to you if she still has it at time of her death).

Sorry if I've made a hash of explaining it!

ThereIsALifeOutThere · 22/12/2024 17:58

@recyclingisaPITA thats a really good explanation p.

@Wholeboxoftissues I agree that the way your dad wants to organise things is likely to create problems.
Paying HIT is one big issue
Missing out on HIT for your mum so paying taxes for no reason.
Putting your mum in a precarious position
Cost of maintaining the house your parents are living in etc…..

Could your dad get some more advice around that?

Fuckthecamelyourodeinon · 22/12/2024 18:24

@recyclingisaPITA thanks for the explanation. I've been trying to get my head around these things as we get closer to care homes, down sizing, gifting to family etc.. much appreciated

Wholeboxoftissues · 22/12/2024 18:26

Wow, thank you everyone for the responses, I have a LOT to talk to my dad about. Thanks particularly @recyclingisaPITA
To answer a couple questions - my parents are married and I always assumed the house was owned by them jointly, but apparently it has been written into the will that I must allow my mum to live in the house until her death, and that provision wouldn't be needed if she herself owned it. And yes that apparently is written into the will and not just something I'm verbally agreeing to.
This is really not intended as a drip feed but I genuinely forgot all about these additional major aspects when I wrote the original post and I'm sorry:
He owns a third house, which he bought years ago for a distant cousin to help her out. He says there is large mortgage on this house and not much equity, and he is leaving this house to her.
He also owns a narrow boat, which he is leaving to another cousin.
I'm sure he got legal advice on this because he was also advised on making us both POA which recently went through. But with regards to inheritance tax it does seem like he's left various properties to various people without considering that any of it would have to be sold.
I'm particularly worried now about the prospect of having to maintain my mum's house indefinitely if my dad dies first, I hadn't thought of that. I have no idea how much money he otherwise has that we will inherit and indeed what my mum will inherit...I have to assume he's made provision of some kind for her considering she has no assets or money or even a private pension of her own. But then who knows??

OP posts:
Iloveeverycat · 22/12/2024 18:27

I knew someone where their dad left the house to their daughter in a will and the mum stayed living at the house. As the daughter owned the house the mum didn't have to pay care home fees. But the house must have just been in the dad's name so he could leave the house to whoever he wanted to.

Grassgarden · 22/12/2024 18:36

If he's leaving all his property to people then how will inheritance tax be paid?

Grassgarden · 22/12/2024 18:36

Perhaps he has enough in cash and pensions and that's not an issue

Overthebow · 22/12/2024 18:38

Grassgarden · 22/12/2024 18:36

If he's leaving all his property to people then how will inheritance tax be paid?

Houses will have to be sold if there’s inheritance tax to pay and if the people inheriting can’t pay it without selling.